The question of the day is whether this morning's weakness was just another routine dip-buying opportunity, or a warning sign that we could see further selling pressure soon.
We have bounced back so quickly and easily from every little flurry of selling that it is easy to be sanguine. But dips like we are seeing today eventually take a toll as they deplete buying power and trigger defensive moves by those with big gains to protect. Caution has not been rewarded, but that doesn't mean you should be undisciplined.
One of the tough things about this market has been that a lot of the standard money management methodologies have proven to be quite costly, especially if you are inclined to take gains as things become technically extended. Nothing has been easier to do in the market in 2012 than sell too early.
There always comes a time when sales into strength turn out looking smart and you have to wonder if we are moving closer to that point. I'm certainly leaning that way, as I'm not adding many buys right now.
We'll see how we close. If we test the early lows and close weak, that will be a change in character and we'll need to watch for more aggressive selling of the next bounce.
At some point, the bounce buyers will be caught out of position, and that is when tight defense really pays off.
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